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Investing.com -- Bank of America downgraded Alcoa (NYSE:AA) Corp to Underperform from Buy given a weaker outlook for aluminum and alumina prices and growing uncertainty around demand, especially into 2025 and 2026.
The bank also slashed its price objective for the stock to $26 from $58, warning of significant downside risk to earnings and valuation.
“On the back of lower BofA aluminum and alumina price forecasts, we reduce our rating on Alcoa to Underperform from Buy,” analyst at BofA said.
Alcoa has significant gearing to the prices of both commodities, analyst at BofA say. It now expects lower average aluminum and alumina prices to drag on earnings, with forecasted EBITDA for 2025 cut by 46% to $1.55 billion, and free cash flow slashed by 68% to $313 million.
The firm’s revised estimates also show net debt rising to $1.05 billion by the end of 2025, more than doubling from a previous forecast.
BofA also reduced its EV/EBITDA valuation multiples for 2025 and 2026 to 3.0x and 2.5x, respectively, from 6.0x and 5.5x, citing rising macro uncertainty.
The firm maintained its price-to-net-asset-value multiple at 1.0x.
The report highlights additional concerns around the impact of U.S. tariffs on Canadian aluminum, with about 70% of Alcoa’s Canadian production exported to the United States.
BofA noted that recent softness in the U.S. Midwest Premium, a key price offset, increases the potential earnings drag from Section 232 tariffs.
If the premium remains flat from late November levels, BofA estimates a negative EBITDA impact of $411 million annually, compared with $109 million based on current figures.
The recent decline in the Midwest Premium is a concern, BofA said, pointing to waning demand signals in the market.